Advisers need to position themselves as the CFO for their clients: not just an investment adviser, but a life planner looking at all aspects of wealth management
“If you always do what you’ve always done, you’ll always get what you’ve always got” – Anonymous
Never, perhaps, has the pressure to change been as strong for Indian advisers as it is today. While the retail investor market in the country remains attractive, independent financial advisers (IFAs) with the traditional commissions-driven distribution business model feel that their livelihood is being threatened, both by regulators as well as zero-cost platform challengers.
For a retail investor today, online platforms offering investments at zero or no costs have become an attractive starting point. Most platforms offer direct plans, pre-empting informed investors’ questions on commissions and bias, and also offer several tools around SIPs (systematic investment plans), fund switching, rebalancing and goal-based planning. As a result, the gamut of basic, transactional services around investments is fast being commoditised, and IFAs, especially those in the distribution business, find themselves in direct competition with such platforms. With their revenues receding as commissions keep going down and their core value proposition weakened, IFAs are now being pushed to explore new business offerings and differentiate themselves.
Taking the Measure
The fight has only just begun though, and IFAs still have a big role to play in shaping what the market will look like once the various business models are baked to perfection. At this point, the online platforms are at a nascent stage and very few, if any, have a profitable and viable business model. Their cost of customer acquisition is still very high, and with most of them offering low or zero-cost services, their monetisation strategies are not yet clear.
Platforms are currently focusing on customer onboarding, and a lot of them have been able to show impressive growth on this parameter. However, whether their array of features is enough to ensure stickiness of investors and AUA (assets under advice) still remains to be seen. How do their services play out when the markets turn bearish? Typically, this is when investors need the maximum handholding, and that too from a human adviser they have already come to trust.
The same question applies to platforms’ aspirations of addressing the HNI, or neo-HNI (Rs 10-50 lakh) segment – can they persist with an end-to-end digital services model, and deliver to a segment that is much better informed, asks tougher questions and expects clear value differentiation?
If we observe the trends in the more developed markets such as the US, where robo advisers have been around for close to a decade, we realise that these questions are not easily answered. The leading US robo advisory platforms, Betterment and Wealthfront, are still loss-making despite a dominant position in the market for many years. More importantly, the investment performance of robo adviser platforms in general has not been impressive, and their key features such as rebalancing and tax efficiency seem to be overstated.
The one undoubtable effect of advisory platforms is the growth in the retail investor base. Indian IFAs need to focus on this, and the fact that platforms may also turn into a source of new, more informed clients on the lookout for holistic advisory services.
This, of course, means that Indian advisers need to be ready to attract such clients when this happens. To build any kind of competitive footing, advisers will need to show value in consistently managing asset allocation strategies with disciplined rebalancing, and also be able to advise on life-goal decisions that will affect the client's finances significantly. Once an adviser is confident of being able to offer this, s/he can build up her/his competitive standing by taking the following steps.
Adopting technology smartly: While we see a far higher readiness in IFAs today to experiment and adopt technology in upgrading themselves, these actions are still, on the whole, fairly directionless. Technology should be the next step after deciding on their positioning and business model, as choosing the right technology partner will help them to scale efficiently and effectively. This also includes deciding whether the business model will be a transparent fee-based model or commissions model.
Deciding what the services and customer experience of their practice will be like will help advisers choose a platform or software that offers the most efficient way to deliver it. What will the revenue model be, and how would they recover dues? Which are the assets/products that they would like to advise on? Would they like to go multi-asset? Do they have in-house research capabilities, or do they need a portfolio modelling solution? Will they offer compulsory portfolio reviews? How important would mass transaction capability be in their practice?
Finding a niche: An IFA can demonstrate value add as an adviser only once they actually meet a potential client with a serious intent to invest. Which means they need to smarter about building a pipeline of leads that are most likely to convert. This is where ‘niche marketing’ can help. To start with, IFAs should analyse and identify characteristics that seem to be common among their best relationships. These can be in terms of demographics such as occupation, age group, education, life stage, or even attributes such as socially minded, religious, adventurous, driven or laid back.
Identifying a niche helps advisers find clear, on the ground opportunities to interact with the right kind of customers (trade forums, professional associations, social networks are the most obvious examples). More importantly, in time, it gives them a unique differentiation that becomes difficult to compete with. Niche marketing is fast developing marketing technique among advisers globally, with a lot of best practices being discussed online. This is definitely something IFAs need to know more about.
Going inch wide, mile deep: Another important way of differentiating an advisory practice is for advisers to dig deep into all the financial needs of their client niche, and scale up to deliver holistic services to cater to all of them. A great example of this is the rising specialisation of Financial Transitionists in India, who are able to offer more than investment advice when their clients are going through a significant change in their life like a divorce, inheritance, start of a new venture, etc. Estate planning, GST Tax Planning are other emerging specialisations that advisers are looking at. This also calls for a more formalised focus on qualifications and certifications amongst advisers – as markets mature, and client needs become more complex, past experience will no longer be enough to deliver what’s needed.
Advisers can also consider building a network of partnerships that specialise in adjacent financial needs of a certain client segment and can work in a mutually beneficial manner. Note however, that a practice can be effective and profitable as a holistic service provider only in a fee-based model.
While all Indian advisers are on a quest to transform themselves, surface measures will not suffice. Advisers need to position themselves as the CFO for their clients: not just an investment adviser, but a life planner looking at all aspects of wealth management, to be able to differentiate themselves better.(The writer is MD, iFAST Financial India Pvt Ltd)Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.